Services sector reduction slows

THE services sector shrank for the 16th successive month in May, but the pace of reduction eased to its slowest level since September 2008.

The NCB Services Purchasing Managers’ Index rose to 39.5 in May from its second lowest reading of 32.2 in April.

Any figure below 50 means activity declined.

The survey showed activity fell sharply, despite the pace of decline easing, while the cost of inputs costs decreased at the fastest pace in the nine-year history of the series, reflecting weaker global demand.

The report also recorded further steep reductions in employment as the economy continued to slow.

Job cuts in the sector continued due to a combination of responding to lower activity requirements, and attempts to cut costs.

The latest fall was only slightly slower than that of the preceding month. Redundancies were recorded in each of the four broad sectors monitored by the survey.

The Purchasing Managers’ Index rose to 39.5 from 32.2, while business expectations were at 50.8 compared with 46.6 in April, “reflecting a growing hope the general economic situation would improve over the coming months”, said Alan McQuaid, economist with Bloxham Stockbrokers. “We believe the worst of the contraction has occurred and these latest figures add to the evidence that [falling] confidence may be in the process of bottoming out.”

Business and consumer confidence had taken a hit from income tax increases unveiled in April’s emergency budget, but returned to the exact figure posted in March which briefly ended five months of negative outlook. “The survey almost mirrored the manufacturing sector which shrank at its slowest pace since October”, he said.

Employment numbers continued to decline due to a combination of responding to lower activity requirements and attempts to cut costs.

According to the index, optimism was recorded across all sectors with the most positive outlook amount in the technology (TMT) sector where sentiment improved to its strongest since September.

Brian Devine, economist with NCB, is also optimistic that the worst may be over.

“It is encouraging to note that the Technology, Media and Telecoms (TMT) sector saw no change in activity during May, ending a seven-month period of continuous contraction,” he said.

The three remaining broad sectors (business services, financial services and travel, tourism, restaurants etc) continued to suffer declines in activity but for the first time in a year, each of the four broad sectors posted optimism about future prospects, he said.